Business groups protest Calif. carbon market

SACRAMENTO, Calif. (AP) — A key component of California's landmark greenhouse gas emissions law would impose enormous costs on businesses at a time when the state's economy is sputtering, oil refiners, manufacturers and others said Thursday.

Fees from the state's pending cap-and-trade program for carbon emissions amount to a $1 billion-a-year tax increase on about 500 businesses in the state, the California Air Resources Board was told.

While the board wasn't voting or taking any significant action regarding cap-and-trade at Thursday's meeting, it was the last chance for businesses to be heard before the program begins.

The California Chamber of Commerce and others have written Gov. Jerry Brown urging him to halt the start of the program, which begins in earnest on Nov. 14 and is the central element of California's 2006 climate-change law, AB32.

A key issue for those opposed to the program is costs associated with the permits — called allowances — which the program will require businesses to buy, some at auction.

In general, cap-and-trade will place a limit, or cap, of the emissions of heat-trapping gases that are allowed from pollution producers like refineries and cement manufacturers. The businesses will be required to buy these allowances from the state, with each permit allowing for a ton of carbon each year.

For the first two years of the program, businesses will receive 90 percent of their allowances for free, with the free amount and the cap declining over time. The board has estimated that businesses will pay $964 million in allowances in fiscal year 2012-2013.

The chamber and other businesses want the amount of free allowances increased to reduce the impact on their businesses in a struggling economy.

"The fact is that this auction represents a multi-billion dollar hidden tax that will harm California businesses and consumers by dramatically increasing energy costs at a time we can least afford it," the letter to the governor stated.

Some business groups say the uncertainty about what costs associated with cap-and-trade will be in 2015 — when the number of free allowances are set to be reduced — are influencing investment decisions being made now. They want assurance that those costs will be lowered by offering more free allowances.

"We need to send the message now ... that more allowances will be available to industry," said Dorothy Rothrock of the California Manufacturers and Technology Association. "2015 is right around the corner and manufacturers are making plans this year for the next three-to-five years and capital investments may or may not happen in California based on the current regulations."

Supporters of the auctioning of allowances say making all of them free, as the oil companies and manufacturers want, would nullify the point of the program: to put a price on carbon.

Mary Nichols, the board's chairman, said the auction is important if the cap-and-trade program is to "provide an efficient and equitable way to discover the actual value of a ton of carbon — and to create an incentive for those who can reduce it more cheaply than the allowance price to invest in the technologies to do so."

The board has designed the system to financially reward businesses that reduce emissions below their cap — meaning money could be made through cap and trade. Officials also said the new market for technologies needed to curb emissions will spur innovation and economic growth.

Companies that cut emissions and have extra allowances can then sell the permits in a marketplace; greenhouse gas emitters could purchase those allowances if they failed to cut emissions.

Polluters that reduce emissions could turn a profit if the market price for extra allowances rises above the initial cost of the permit.

A company can also meet up to 8 percent of its emissions reduction obligations by purchasing carbon "offsets," or investments in forestry or other projects that reduce greenhouse gases.

"This system rewards those that are more efficient and allows those who can't or don't want to reduce their emissions too keep on operating and pass the cost of allowances on to their customers," Nichols said.

Not all business groups were opposed to cap and trade. Leonard Robinson of the California Black Chamber of Commerce said the program is needed to help the state transition to a "green energy" economy.

"Carbon markets put a price on inefficiencies ... and the long-term financial benefits will supersede the short term costs," Robinson said.

The program, the largest in the U.S., is modeled on similar programs in Europe, and designed to be able to link up with plans in other states and elsewhere to increase the size of its market for carbon allowance trading.

"(The board) has gone a long way to make these regulations as simple and palatable as possible," Nichols said. "At this point it's time for CMTA and (Western States Petroleum Association) and the chamber to join the many of hundreds of businesses that are investing in the fight against climate change instead of fighting AB32."